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An Opt-Out Option?
November 17, 1999
Cato receives many inquiries concerning the possibility of "opting
out" of Social Security. But until new Social Security privatization legislation
is passed, there is no individual opt-out available.
Sec. 3101 of the Internal Revenue Code mandates that "there is hereby imposed
on the income of every individual a tax equal to the following percentages of
the wages," presently 6.2 percent. The employer must match the employee's tax
payment. Sec. 3102 of the IRS code mandates that employers deduct payroll taxes
from workers' wages and submit them to the government. In short, the payroll
tax is mandatory on every worker, regardless of whether he or she has a Social
Security number.
There are several exemptions:
- State and local government workers participating in alternative retirement
systems of their employers.
- Election workers earning $1,000 or less a year.
- Career federal employees hired before 1984 who did not choose Social Security
coverage.
- College students working at their academic institutions.
- Household workers earning less than $1,100 per year, and those under age
18 for whom household work is not their principal occupation.
- Self-employed workers with annual net earnings below $400.
- Ministers may choose not to be covered, though 90 percent of ministers
have opted for coverage).
- Religious Opposition. A religious exemption is granted if both the employer
and employee are members of a religious group established prior to 1951 that
is "conscientiously opposed to acceptance of the benefits of any private or
public insurance which makes payments in the event of death, disability, old-age,
or retirement or makes payments toward the cost of, or provides services for,
medical care (including the benefits of any insurance system established by
the Social Security Act)." Prominent instances of such groups are the Amish
and Mennonites.
None of these exceptions, however, establishes a general opt-out, wherein
an ordinary worker would forego claims to future benefits in order to be allowed
to invest his payroll taxes on his own.
That is why Social Security privatization is so important. Only new legislation
can give workers the legal right to save their own payroll taxes in their own
personal account, and the property right to their savings such that it can never
be taken away.
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